To get more space or a location closer to urban downtowns, more homeowners are transforming warehouses into their houses.

The interiors had peeling plaster walls covered in layers of old wallpaper and paint. A leaky roof and mostly abandoned second-story required immediate attention. In short, the place was a wreck. And yet, "we really just fell in love with it," says Jay McKinney of his Birmingham, Ala., home.

Mr. McKinney, who handles operations for a financial software company, and Chuck Strahan paid about $300,000 to renovate and...